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lori: 1:00 eastern in new york. i am lori rothman. a rally with ben bernanke. melissa: i am melissa frances. the fed taking action announcing the purchase of additional mortgage-backed securities. a billion dollars per month and extending the period of low rates through mid 2015 to, quote, support stronger economic recovery. focusing mortgage-backed securities. lori: $40 billion a month and open ended so this could go on forever. they call this the nuclear option. the fed was so aggressive we get analysis and market reaction and
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the dow up 100 basis points. what does it mean for you and your wallet? we will look at ben bernanke's press conference. that begins in an hour and it will be live on fox business though keep it here. lori: the attacks on our embassy overseas. is it time to rethink the billions of dollars of aid going to these countries? we will ask lou dobbs and business partners including israel. time for stocks every 15 minutes. nicole petallides where stocks are jumping. thanks to the fed. nicole: multi-year highs. looking at the dow jones industrials as soon as it was announced you get everything traders hoped for on a silver platter for bond buying to extending language to highly accommodative. here's a look at the dow up nearly 120 points. new highs as we speak for the dow. the s&p and the nasdaq each
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higher by one percentage point. the fear in tax, dropped dramatically. no fear here. everybody is buying everything from banks to retailers to drugs and that is what we are seeing. every name on the dow jones industrial average has been in the green other than boeing. find across-the-board. no fear at the moment and media reaction to the fed statement so everyone cheering for the short-term. melissa: thanks so much. the fed new stimulus program has commodity pits rocking as well as go to fox business contributor phil flynn and price futures group. gold and silver on these decisions. phil: absolutely exploding. before the announcement they were down $0.50. it is almost a buck right now. that is huge for silver. we're talking $8,000 in almost a matter of moments.
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right now you have goals of $25. it was down 10 before the announcement. the interesting thing if you look at the short end of the curve all these traders didn't really believe that the fed was going to extend this period of low interest rates. they are recovering in a big way. i am seeing volatility. and anything -- i have seen in my lifetime or in the near future where lot of action is. the amazing thing if you look at the dollar index the dollar is barely moving. it is like somebody turned the machine off. that is the biggest surprise but the rest of the commodities of loving it. cheryl: why do you think the dollar would be flat? >> because we are in the same boat as the eurocurrency. central banks, things start to look different. watch out. we will plug the with cash.
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they are trying to determine exactly what that means in relationship to the other currency. they are stunned and they will see what other central banks do to see what the announcement is that no doubt over the long run the dollar has been hit very hard. we are a multi month low and it will go lower as it is more clear. cheryl: thanks so much. by an 11-1 vote jeffrey lacher was the dissenter. [talking over each other] the federal reserve has decided to launch a new bond buying program. $40 billion of agency mortgage-backed securities each month starting friday. they continue operations twist and push the guidance keeping rates at lowest lows. was this the right move? what does it mean for the economy? the chief investment officer,
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making visiting scholar at former consultants as well at the u.s. treasury department. begin with you. what do you make of this aggressive move by the federal reserve chairman this act in? >> it fulfilled the best expectations of the financial markets. cheri they celebration under way. addiction is a marvelous thing and we have it in financial markets. as to what it does for the economy is a different question and it doesn't do much. lori: in terms of the message of the market showing the dow spiking. not a lot of change in oil or the dollar. gold is high. treasuries are selling up and i thought that was interesting. if you could expand on the market reaction? >> a stock market rally is a long duration instrument. the fed says they will go to the market by long duration and take it out of a market stocks should be expected to pop. we have a different story and we will play it out in the currency and may be in the bond market
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which may react to a weaker dollar. too soon to judge. melissa: they are focusing on mortgage-backed securities. what does that tell you for the average person out there? the fed will stay active in mortgage-backed securities. does it say to you they are worried about the housing market? they feel they have to support it? >> what the fed said is they are worried about housing implicitly but explicitly they say unless the employment picture improves substantially that word again, they would extend efforts to buy mortgage-backed securities. they put an open ended commitment tied to the level of employment which is a pretty aggressive move by central-bank consistent with ben bernanke's remarks at jackson hole. that is underscoring how determined the fed is to remain
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accommodative until they have movement in a real economy. the real economy isn't guaranteed but right now the impact on financial markets is not ambiguous. cheryl: you expect interest rates to come down on the back of this discussion about the fed trying to bailout housing market as well with focus on mortgage-backed? not the first time this is where the q e has focused on the past. i thought rates would fall first but are you looking for more like longer term reaction in the treasury market? >> one thing i was worried about is what the fed doesn't want to see is sell-off in the long end of the treasury market that has been underway for a while. we have seen treasury rates go up a bit and after this announcement that continues. the market may be beginning to wonder if this commitment to reduce the unemployment rate is
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inflationary. that could be the one problem with the fed's aggressive move. cheryl: -- melissa: is there anything the fed can do about employment? they want to keep these rates low until employment improved. anything they can do? >> they have to hope by pushing up financial assets and getting people to take more risks and increase the wealth affect and increase spending and employment that they will get a positive effect. results have not been overwhelming and the jury is still out. they say if we don't get substantial improvement we will do more is what may be making the bond market nervous. lori: last question. federal reserve chairman sending a message to congress very stern in comments in jackson hole about everything i have done and he did that today with monetary policy being so aggressive.
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the nuclear option. what is the message to washington? >> the message is wake up. doesn't look like they will. i agree with john's assessment on the economy. we are in trouble. what happens when nothing happens? that is evolving. we heard savers and that is beginning to take hold, raised savings and it is counterproductive. melissa: appreciate your coming on with us. the sparking riots in libya today. protesters stormed the u.s. embassy in yemen and fox news reporting the attack that killed the u.s. ambassador to september 11th. rich edson is in washington with
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more on this developing story. fresh comments were as president obama speaks at a campaign. >> early indications, a planned raid resulted in the early indication. the house intelligence committee sums up by saying he heard the intelligence service that it was a coordinated military style commando type raid. u.s. government is containing protests and violence around the region. >> closely watching what is happening in yemen and elsewhere and we certainly hope and expect that there will be steps taken to of wage violence and prevent
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escalation protests into violence. >> wall street journal reports officials have arrested four in connection with the attack on the u.s. consulate in benghazi. a libyan official involved in the manhunt also reports libyan security forces have made larger group under surveillance. melissa: thanks for that report. much more and the federal reserve including peter barnes before he heads inside to throw a few questions that the fed chief coming up this afternoon. melissa: next we show you why you need to listen to charles payne. a look at what is up 20% since he recommended it in june. but first let's take a look at metals on the back of all this activity out of the fed. you can see that surging across the board. gold trading at 2% and silver up 3%. call
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[♪...] melissa: let's get a check on the markets. nicole petallides is on the floor of the stock exchange watching semiconductor sector citigroup downgraded several names. nicole: let's look at what is going on with these names. citigroup is downgrading these names as the trio of semiconductor firms. advanced micro and marvel
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technologies not too far off. they eased up 1/2% but the whole idea of a wait and see outlook is showing demand waning, concerns in asia in particular so all these names were cut to neutralize citygroup and they expect less demand. melissa: thanks so much. time to make some money with charles payne falling upon recommendation for home furnishings stock that made a pretty penny. doing a little victory lap. charles: you gave me that book when i mentioned here one. i don't do wicker any more. [talking over each other] lori: lots of wicker or no wicker? at what point? [talking over each other]
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charles: the stock is pulling back but opened the much higher over $20 a day. we send an alert to our subscribers. so many people jumped on the bandwagon and this is one of these stocks whenever when he did you buy and when everyone loves it you get out of it. 16-20 in a short time take the money and run. [talking over each other] lori: what would you say about competitors? charles: those kind of things, had a real good number recently. they are going relatively well and williams sonoma -- [talking over each other] melissa: it is a type of cooking. [talking over each other] charles: since you brought up food another stock no one really likes is weight watchers. i am not sure i agree with their
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business model. people get boxes of food and they will bounce back but i really liked this idea of jessica simpson. i know you are going to say i am nuts but they have gotten a billion dollars of free publicity already. i cannot turn on the tv -- that will be -- [talking over each other] lori: she doesn't lose the weight. melissa: check back on this. charles: wait watchers no one likes it right here but my target is $53. lori: thanks so much. up next, and electric car as liz claman talks to those ceo. melissa: let's check the dollar and how it is reacting against its major trading partners. we have a rally in the stock market. treasuries are selling off. lori: we will show you technical issues. still there.
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>> 22 minutes past the hour this is your fox news minute. progress being reported to end the chicago teachers strike. students could be back in class on monday a week after teachers walked off the job. two sticking points the teacher evaluation and job security. new york city health force as the rule banning sales of big sodas and other sugary drinks. the controversial measure limiting the size of drinks to 16 ounces in restaurants, movie theaters and other venues. the ban is needed to fight it deadly obesity epidemic and others see it as a gross government intrusion. 18 workers at new york city's kennedy airport have been arrested for allegedly stealing 100,000 liquid bottles and other
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duty-free items. 15 suspects are a former truck driver for sky chefs and some contractors in american airlines and the the three are security guards. the arrests followed five month investigation called no surprise operation last call. those are your news headlines on the fox business network. now back to melissa and laurie. melissa: thank you so much. we are waiting for animation. the height of the financial crisis the big three automakers were in big trouble. gm and chrysler had to be bailed out but all the while another auto company was tooting out the drama and ramping up the assembly lines in silicon valley. liz claman has the story from silicon valley in day 2 of three days in the valley. liz: this is the same spirit as has lot motors.
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the company i was talking about. this is the first time cameras have come inside here. this is a flexible display lab. at some point when they figure out how to make it happen you will actually have a screen that can roll up a newspaper and you can put it under your arm or carry it up and fold it into your suitcase. unbelievable. albert is one of the geniuses here but as they work on a flexible display you can see they are taking a thin film and folding components of what would be the display. the screen, into a flexible concept. what would it look like? this is -- you can see the circuit board put on there. what we are -- going back to tesla we have been falling at start up for many years and been with the ceo elon musk.
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sid: hundred roadsters were made but he also has a rocket ship company where the dragon capsule that we followed many years ago finally had its major success where it docked with the international space station but going back to tesla what started as a simple idea has become an unbelievable assembly line we got a behind-the-scenes rare look at and wait till you see how he's doing something completely different from the three big automakers. tell us what this is right here. >> painted body where we extend the panels and assemble the panel's and welded them together and come to our paint job. liz: how are orders trending right now? >> doing really well. we continue to cu order growth
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with every quarter seeing more and more interest. that is a good sign that interest in the car is growing for one quarter of the next and we have a big backlog. liz: you are doing 40 cars a week? is that correct? >> we will do more than that this week. probably double that. liz: last week we were told it was 40 and the week before you were. now double that? >> it will be double that this week probably around 80 cars. liz: a logical question are you hiring? >> we are absolutely. over 3,000 people. in the last six to eight months we hired a thousand people. liz: this plant here was a japanese car company. >> primarily toyota. liz: surely you studied the big three automakers. have you learned from their
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mistakes and the things that you say we will never do at to asthma? >> we will never make a bad product. tesla will never shipped a part that is very compelling. a lot of the big three car companies decisions have been made from the cfo's office and it is not like squeezing a penny here or there or worrying about these products. you really want people to experience a moment of magic and wonder. liz: this is non union. [talking over each other] >> when it was toyota it was union. liz: is that something you want to avoid? >> we are neutral on that subject. there has never been a union -- we have not done any anti union
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measures. business doesn't seem to be any desire on product people to form a union. liz: stock up 28% year over year but there is a pretty big short position on it. >> given that we are such a huge short position and in fact the short position may be as high as one can go. looks like it is appealing on the short position. they are in it to the hills. liz: they are 100% wrong. >> is very unwise -- very unwise -- there is a tsunami of growth coming for the short position. going to be very him -- people to exit. liz: tsunami of her. tesla gives stock options to
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every employee no matter what they do on the floor or in the operation. everybody gets stock options. pretty interesting. coming up in the 3:00 p.m. eastern our part ii of my exclusive talks with elon musk. if mitt romney were to win what would the future look like? president obama and president bush have been supportive of the electric vehicle concept and from hewlett-packard in a fox business exclusive she has not given an interview in quite some time but quite a lot to talk about with meg whitman, ceo of hewlett-packard just days from her one year anniversary. where do things stand in her transformation of this company which tried to regain that iconic status as the largest pcmaker. lori: the market's just sore on the back of a fed. multiple attacks on this story.
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and conflict over the last couple days. what should the response be? and type terror expert joins us after the break. lori: we head to peter barnes with more on today's decision in the upcoming news conference but first let's look at the winners and losers on the s&p 500 right now. you can see alpha natural resources trader better than 8%. we will be right back. woman 1: this isn't just another election. we're voting for...
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>> i'm nicole petallides live on the floor of the new york stock exchange. we have the your market check for you here on the fox business network every 15 minutes. right now thedown up 156 points as the dow, the nasdaq and the s&p all hitting multiyear highs on the heals of what we heard
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from the fed. and the federal open market committee's decision for more bond buying. also here we're looking at the sectors on heels of what we've been seeing. the 57 sectors we follow closely. 61 with up arrows including metals and mining. paper as well as chemicals. those are just a few that i'm noting. it is buying across the board here on wall street. back to you. lori: jubilation. nothing the market likes more than another round of stimulus. free, easy cash. the federal reserve announcing another round of stimulus, continuation of operation twist, rolling out forward guidance, pushing it forward. let's go to peter barnes live at the fed. peter? >> that's right, lori. when the fold folks walked into the room with the statement we didn't think they were bringing bazookas with them. every here. qe3, $40 billion worth of purchase as month. new purchases of mortgage-backed securities to try to push mortgage rates down even lower. they're really going after the housing market here
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which is still stuck in the mud. exceptionally lower rates through mid 2015. even if the economy starts to gain strength that is significant. they will keep them low even if the economy starts to strengthen. continuing operation twist as you said. right here in the statement. the fomc quote, is concerned that without further policy accommodation economic growth might not be strong enough to generate sustained improvement in labor markets. they're worried about the european debt crisis. they are not going to let up here. quote, if the outlook for the labor market does not improve substantially the committee will continue of agency mortgage-backed securities and undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved in the context of price stability. lori. lori: and the crowd goes wild. a lot of critics on that. thank you. don't forget fox business will have live could have -- coverage of federal reserve chairman ben bernanke's news
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conference. the events are not over yet. that comes up next hour. melissa: turning to the middle east, uprising spreading across the region. our next guest says it will go on even more. we have fox business middle east expert, walid phares. thanks for joining us. >> thanks. melissa: more evidence it had nothing to do with the movie but an organized attack tied to 9/11. what do you think? >> basically 2 you look at perpetrators now in libya and yemen, it may grow as you said to multiple countries are known as the salafist. in egypt they are allies of muslim brotherhood president unfortunately did not stop them. in libya they are not allies of the government but they have al qaeda connections n yemen they have al qaeda connections. now the united states and its allies including in the arab world need to basically dismantle the network of salafists because they are waging a war against american interests.
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lori: the protest we're seeing in cairo, walid, plug that in for us. seems the anti-american sentiment is growing, it is snowballings do you agree. >> that is what the propaganda of jihadists want us to believe. these are civil societies rising up against america because of a movie. that is not the case. these are war rooms of networks that take people to the street. an individual wakes up angry against an american and goes throw a rock at an embassy. these are organized networks that want to channel anger in egypt against the united states. the government of egypt has a duty to protect our interests in the region. melissa: you say america has to disband band the network. is that even possible? how do we do that? >> there are multiple stages. stage number one the president of the united states and executive in power should call the president of egypt and ask mr. morsi to basically do his duty and protect our embassies and dismantle
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network f he doesn't, we're offering $1.8 billion in egypt. we'll begin reducing. and then we will fund the opposition. we have tools we can use. same thing for libya and yemen in different ways and means. lori: this is troubling walid. last week we were following events in israel. we know iran is so close to a nuclear bomb. how unstable the region? a lot of people call that attack in libya that killed the ambassador an act of war. not to be alarmist but how close are we? >> we are absolutely right. this is an act of terror. we have to explain it to the american people as it is. it is not yet a full-fledged war but indicates more of these activities will happen. the acts in libya and acts in yemen now are indicators those salafist jihadist will perpetrate more. they will not pack and leave. we know they will do more. we need to form a coalition with governments in the region, civil society in the region and international
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coalition to begin action against salafist networks. melissa: walid phares, thanks for joining us. >> thank you for having me. melissa: the u.s. sent over $200 million in aid to libya, this is what we were talking about since the 2011 uprising. $1.2 billion to egypt by end of the this year. is it time to think about where the money is going? lou dobbs weighs in. lori:. lori: we have spending cuts because congress couldn't agree on a budget last summer. lou will have a lot to say. treasurys are selling off even though the fed is keeping rates at historic lows even longer and doing an incredible amount of easing. very aggressive move announced by bernanke. there is the 30-year. the yield up to 2.96%. back with more after this. [ male announcer ] if you believe the mayan calendar,
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>> i'm cheryl casone with your fox business brief. stocks are getting a boost in afternoon trading following the federal reserve's announcement it will take an shun to help stimulate the u.s. economy. by 11-1 vote they will launch a new program of open-ended bond purchases and buy $40 billion of agency mortgage-backed securities each month starting fried. suing rival truly yaw for patent infringement. zillow says how it
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determines value of a property infringes on one of its patents. one ever baseball's historic franchises could be up for sale, the boston red sox. charlie gasparino report that is the team is quietly shopping the buyers for the club. that is the latest from the fox business network, giving you the power to prosper. we're give up 150 points.
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melissa: it is almost a quarter to. as we do every 15 minutes let's check the markets. nicole petallides is on the floor of new york stock exchange watching two s&p moves making big moves today. >> we'll start off with, jumping up, up 8%. s&p 500 moving to the multiyear highs. it is up one.25%. it is up nearly 8% on the day.
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they make air filtration systems. guess what, easily beats the street that is a clear winner. looking at northrop grumman. this is a name on the move. ubs cutting northrop grumman to a sell rating from a neutral saying valuation gap with cuts from other defense contractors bring on the downgrade from ubs. that is why you're seeing this name in particular down nearly 2 1/2% on the day where really we're seeing buying across the board on heels of what we heard from the fed. back to you. melissa: nicole, thanks so much. lori: the fed our top story also the situation unfolding in the middle east and disintegrating. our embassies, consulates and our citizens are being attacked in countries with we give foreign aid to. since the 2011 uprising in lib i can't think u.s. provided more than $200 million in assistance to the country. is it time to rethink where our money is being sent? lou bobs is -- lou dobbs is
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here with his take. since we have less money these days and probably will have less money to spend on the defense budget. >> you put it exactly right. the fact is, it isn't our money. we're giving chinese money to pakistan. we're giving chinese money to egypt and to other countries around the world. melissa: good point. >> this is a leftover, a of the arrogance and all of the attitudes that our public officials, our elected officials brought to governance. and that is, the arrogance that has resulted in squandering our treasury, in many cases lives of our troops in adventures around the world, and now. with a $16 trillion debt, we are going to be patronizing to the world when we should be allying ourselves with those who we want to be friends. and you don't do that with this kind of nonsense. it has been proved to be a
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wretched hollow farce, period. i have to give senator rapped paul great credit. he was the first senator to come out and say point-blank, end aid right now to libya. end the aid right now to egypt. op the nonsense. melissa: the argument against that i'm not going to make it, just one that people have raised is, that we need to try and have some influence in the region. that the suez canal is there. that's one reason to try to keep goods flowing. you know. lori: also to send a message that these radicals didn't win, by coming off that part of the country, it shows that the u.s. is capitulated. >> a couple of things if i may. one is, there is no sense trying to mitigate or contort the consequences of really horrible decision-making by our government over decades, not just this administration. we have, at this point, turned over trillions of dollars to, to the radical
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islamists, in this war on terror. which this administration will not even acknowledge. we put hundreds of thousands of troops where they use a handful of be, suicide bombers. we have done everything about as wrong as we could in the region. we can not buy influence. we can not buy friends. you can buy in certain circumstances a short-term result but you can not buy the kind of relationships we need. and this is, this is not our values that we're projecting. this is not a, a nation that's built on buying people out. this is a nation built on our values, our freedom and free enterprise, and democracy. what in the world is wrong that anyone would even think like so many of our elected officials in washington do? melissa: 1.6 billion to egypt is staggering, second only to israel in the region. amazing you would put those two countries next to each other in terms of aid we're giving. >> it is preposterous in
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both cases. most of aid we give to israel is military aid and we deposit there some of our most advanced weaponry for our use and as well as that of our most important ally in the region. that makes great sense. but let's kid ourselves. this is not about buying friendship. it can't be bought. melissa: that's a great point. >> all against the backdrop of our struggling economy which lead me to my question about the federal reserve. your take. we're waiting for the press conference. so much criticism on another round of qe3. i think bernanke went further than the most toughest critic even expected. how will he handle the pre conference because he will face tough questions. >> he will face tough questions. he demonstrated he is tough enough to make the decisions and quite a different metric. i give my full congratulations and compliments to the chairman. what he did today is precisely what he should have done. he has brought qe3 and so
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much more. he has brought clarity and determination to the marketplace. we're watching a yield curve that wild we are watching rates rise, we're also seeing that yield curve flattened. he has to manage the outer extremity of that curve, period. he has committed the fed to doing so through 2015. what we're witnessing now in the market with the dow up 155, we're watching a stock market trying to understand what the bond market did early on, what the commodities markets understood first and futures as well. and that is that accommodative response of the fed leaves sole responsibility, if it wasn't clear before, for fiscal policy at the hands of this president and this congress. he has done everything he possibly can as chairman of the fed to do what is right both for full employment and objectives and, price stability. lori: thank you, lou. >> thank you. lori: every day at this time where will you be? right here with us.
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>> you betcha. lori: tonight lou will speak with austan goolsbee. and mort zuckerman. melissa: my favorite. lori: they just killed that. mort zuckerman, influential. good stuff. >> we'll talk with peter fisher. it will be terrific to got a real good idea what will happen to the markets and this economy. great to be with you. lori: rising tensions overseas are they going to lead to rising pricewaterhousecooperses over here at home in gas? liz macdonald looks compared to 1979 and what is happening now. melissa: as we go to break look at winners and losers. you can see monster beverage corp. up today higher 6%. we'll be right back.
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>> breaking news coming to us from our friends at "the wall street journal" attorney general eric holder is cutting short his trip to qatar to oversee a federal probe on the embassy attack in libya. that news coming in right now. >> all of this as gasoline prices rising, tensions in the arab world harkens back to 1979. emac is here with emac's bottom line. >> about speed of increasing gas prices. we're seeing gas prices rise by a nickel. 17 cents versus a month ago. almost a quarter from a year ago. economists on wall street are comparing this to the first quarter of 2011 as well because when we saw gas prices really rise dramatically then you saw economic growth in the u.s. economy stall out at zero and all the fed's money printing didn't do anything. the market recovery at that time, market rally, also stalled out. what we're talking about back in 1979 we did see oil prices more than double to
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$35 a barrel. by 1981 after iraq invaded iran. we're seeing oil stuck in a trading ban according to guys on wall street. stuck in between 80 and 110. moving up to 98. so we're at the upper level of ban. we're worried about a holiday shopping season starting month and a half and back to school shopping season could dammen down economic growth because gas prices remove money out of spending power. that is the deal. lori: liz macdonald, thank you very much. >> sure. lori: in moments we find out what the fed is projecting for our economy. 2:15 eastern the fed chief addresses the press. keep it
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>> market gained 50 points in the past hour as we get ready for the fed press conference. >> lots to digest and more information. ashley and tracy, for you guys to analyze throughout the hour. ashley: absolutely. the markets love it but will
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it do any good? that is the big question. melissa: you heard lou dobbs. tracy: interesting, gerri willis on the other hand did not. i don't know. i'm tracy byrnes. ashley: i'm ashley webster. the fed announces new stimulus and says it will keep interest rates exceptionally low through at least 2015. let's go to peter barnes. peter? >> that's right, ashley, tracy. we have the new economic forecast from the fed and once again we have another downgrade which helps to explain why the fed is looking for a lot more stimulus here. let's run through the numbers for you, starting with gdp growth. real gdp in june, fomc, projected 2.2% of 2012. it lowered that to 1.9%. it results more economic growth because of stimulus 2013, 2014 and now 2015 up to 3% or more. unemployment rate, that
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projection is unchanged from the june forecast, still at 8.1%. but again the fed assumes this stimulus will all kick in and get the unemployment rate down to 7%, about 7% by 2014 and about six 1/2% in 2015. on inflation, sees slightly higher inflation. we have seen higher gas and oil prices recently. it raised its forecast to 1.8% for 2012. it sees that staying at about 1.8% or so out through 2015. we have of course the new magic chart on the appropriate timing of policy firming, on fomc members expectations when they might start to tighten. overwhelmingly of the 19 fomc members, 12 of them, a majority believe the tightening will not begin before 2015 which is guidance we got in the statement today. ashley, tracy, back to you. ashley: there is vote there for 2016. tracy: wow! inflation, basically, unemployment stays the same.
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gdp lower which somewhat justifies ben bernanke's decision today, right? well it is top of the hour. time for stocks. as we do every 15 minutes we head down to nicole petallides. ashley said it, nicole. the market clearly liking what we heard today. >> that's right. we heard from the federal open market committee basically talking about their growth projections right there. you saw gdp estimates are lower than expected. so that is not good news. that's why they brought out everything on a silver platter today. traders on wall street certainly eating it all up. you can see here, the dow up 152 points. that is a dpan of 1.1% right now, as dow, nasdaq and s&p hitting multiyear highs today. looking at the precrisis numbers. so this is a big deal here on wall street. we're seeing buying across the board. whether it is banks, drugs, retail. gold has been surging. when you talk about inflation you talk about a lower dollar. gold is up $37 right now and taking metals and mining stocks up along with it.
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names like freeport-mcmoran and newmont mining. it is gains across the board. the vix, the fear index, i can not leave that out. you watched this plummet as news broke in the 12:00 p.m. hour. it is down almost 9%. back to you. tracy: nicole, thank you. we'll see you in 15 minutes. ashley: we're just literally minutes away from chairman bernanke's news conference where he will face questions on the fed's new stimulus program. lots of questions for the fed chairman. joining us to weigh in on all this, bob pavlick, banyon partners chief market strategist. and maury harris, chief economist for the americas at ubs. let's begin, bob, with you and get your reaction. well, you certainly, my question to you is, will this do any good? we've seen perhaps some of the numbers weak recently but are they that weak to justify this level of monetary easing? >> i would have to say yes.
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the fed has a dual mandate. one of the mandate requirements is trying to provide full employment and the fed is going to try to approach that mandate, trying to sort of satisfy that mandate by lowering interest rates, especially with regards to the housing market. that's a positive. it eventually will, the idea is that it will eventually encourage people to go out and try to seek a new mortgage and hopefully help rebound what we're seeing in the housing market and eventually the items that go along with the housing market. will it actually happen? that is a question has yet to be seen. a big question mark behind it. what it is doing is removing uncertainty from the overall market and that's a positive. tracy: maury, i don't know, no one is jumping for mortgages these days with rates as low as they are. what did you think of what ben bernanke announced today? do you agree with it? >> i think this was a very clever way to expand your balance sheet in what i would call a politically correct fashion.
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that the fed has been accused of monetizing obama's deficits. well this is a way to get around that. you buy mortgages. you don't buy treasurys. when their day is over though, they're still putting more liquidity into the banking system. when the day's over they're buying an asset and when they buy an asset like treasurys or mortgages that will help other asset prices and ultimately that is one of the major connections between monetary policy and the economy is improved asset prices, including an improvement in the stock market. ashley: bob, let me pick up on that. yes we're putting liquidity certainly into the banking system but the banks are not parting this on, are they? are you surprised that the fed hasn't taken a step of perhaps charging banks for parking cash with them overnight and in an effort to push the money back out to get the economy going? >> i was quite surprised. when i wrote my note to the producer that is one of the things i was hoping to see. if you give banks incentive
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to actually make loans to people that would be, a huge positive for the overall market. you know, we are seeing some improvement in the number of loans that are being made but i think you have to continue to encourage that. now you're doing that sort of, in a sidestep manner. you're going to be buying these mortgage-backed securities essentially from the banks and markets. that will be pumping more money into the banks. hopefully pumping more money into the overall marketplace. that will encourage additional loans going forward. tracy: we're out of time. ashley: we'll take a break and come back and pick up the argument. i know you want to jump in. tracy: it hasn't happened yet. that's all i want to know. ashley: gentlemen, stick around we'll be back with more. tracy: chomping at the bit here. we're moments away from the federal reserve chairman ben bernanke's news conference. don't miss it. we'll have it live next. that's coming up. ashley: first as we do every day, let's take a look at oil and how oil is moving on this news, moving higher up 1% nearly a buck a barrel at
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97.94. we'll be right back. are we there yet?
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the actions by the fed really matter? that is the big question. charles payne is here. >> i'm here to break the tie between gerri willis and lou dobbs. i'm leaning with gerri willis on this okay. listen, i've been pounding people own stocks, buy stocks, buy stocks. people making a ton of money that's the way you counteract this. talk about the tsunami of money and what has worked. obviously the stock market. the s&p was 896 when it all started. now it 1498. mortgage rates were high, now they're sub stacksly lower, typically at all-time lows. that stuff has worked. what hasn't worked? by the way the what are the fed's main two gigs? inflation, they tweak the cpi. i don't even believe that. talk about the tsunami of money. unemployment rate. 8.1. nine million people dropped out of the labor force since this kicked in. gas prices from 2 clin $14
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to $3.84. median home price from 199,000 now, 187,000. only thing i can see it helped out banks. it hasn't helped stocks. tracy: hasn't helped banks actually. >> helped banks officers. ashley: right. >> 2010 top four guys at citi make $42 million. last year pandit's salary kicked up to 15 million. here is irony to your point. citi's stock was 84 on split adjusted basis. 34 now. bank of america is nine bucks now. in the banks themselves, something is wrong. something is still not right. tracy: yet we're giving more money to these banks. ashley: more kool-aid. tracy: they should cut a check and hand it out to the american people. >> banks are saying there is no demand. even own admission to the fed survey, there is 57% demand for mortgages between moderately and strong. banks are only 20 3% more willing to lend money that
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is huge issue. some is not the bank's fault. the rules have been changed completely. fed has to figure out a different way if they want to get money to main street. ashley: cut a check. give it to the people. >> you might as well. ashley: all right. thank you very much. >> see you guys. ashley: broke the tie. tracy: i think so. as we wait for the fed chairman's news conference let's bring our panel back. above pavlick, gartner chief market strategist. maury harris chief economist of the americas at ubs. maury, i will talk with you. we have the great chart the dow is up 50% since the announcement of qe1, november 26th, 2008. labor force completely unchanged. charles payne rattled off a bunch stats that haven't changed and frankly it is worse for the economy. if you have all the money to burn givx it to the american people. help me refinance my mortgage. maybe is better way to get money back into the system. >> couple points real quick. first of all monetary policy you through the qes is
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supposed to work through asset prices. if there is one thing that is pretty different now than four years ago it is your 401(k). you have had a tremendous recovery in asset prices. that wasn't -- not enough to give lower unemployment. but unindependent plo wouldn't be that low. tracy: so many people used their 401(k) to pay bills and to cover their expenses throughout this recession. so the money that was once there is not even there. >> you still have substantial amounts. i think you're right, people did pay from that. look at facts in terms of what's happened to 401(k) balance now veries is where they were four years ago. they're up and they're up considerably. ashley: all right, bob, with regard to the market at what point do the fixed income folks now jump into equities? i want to ask you that question. will they be tempted now? >> i've been seeing it already. i think they're going to continue to see it. to tracy's question, to maury, this actually has
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helped. think about where we were in 2008 and where we are right now. if we didn't have any kind of stimulus back in '08, you know, this economy would be in a recession. we would certainly be moving towards getting out of it. now the fed essentially extended it but you have a much better situation now going on than you would have if you just left it alone. ashley: bob i have to cut you off there. bob, thank you so much. thanks for joining us. let's go to federal reserve chairman ben bernanke about to begin his press conference. >> earlier today the federal open market committee approved new measures to support the recovery and employment growth. i'll get to the specifics of our actions in a few moments but i would first describe the economic conditions that motivated the committees decision to take additional actions. as you know the federal reserve conducts monetary policy under a dual mandate from congress to promote maximum employment and price stability. the united states has enjoyed broad price stability since the mid-1990's
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and continues to do so today. the employment situation however remains a grave concern. while the economy appears to be on a path of moderate recovery it isn't growing fast enough to make significant progress reducing the unemployment rate. fewer than half of the eight million jobs lost in the recession have been restored. and at 8.1% the unemployment rate is nearly unchanged since the beginning of the year and is well above normal levels. the weak job market should concern every american. high unemployment imposes hardship on millions of people and it entails a tremendous waste of human skills and talents. five million americans have been unemployed for more than six months and millions more have left the labor force. many of them doubtless because they have given up fiber-opticking suitable work. as the skills of the long-term unemployed atrophy and their connections to the labor market wither they may find it increasingly
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difficult to get good jobs to their families cost and detriment to the nation's productive potential. to help bolster the recovery and promote price stability the fomc provided unprecedented levels of policy accommodation in recent years. with our rate near the effective lower bound we've been using two complimentary tools to carry out monetary policy. guidance how long we anticipate maintaining kpipgsal levels of policy accommodation. while providing this support we've been prudent, carefully weighing the potential benefits and cost of each new policy sack shun and recognizing that monetary policy, particularly in the current circumstances can not cure all economic ills. the fomc has taken several actions this year. in january it extended its forward guidance stating that it anticipated that the federal fund rate will remain near current levels until late 2014. in june the committee decided to continue through the end of the year the
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previously established program to extend the average maturity of the securities it holds by buying longer term securities and selling an equivalent amount of shorter term securities. however incoming data confirm that the modest pace of growth continues to be inadequate to generate much progress on unemployment. with inflation anticipated to run at or below our 2% objective the committee has become convinced that further policy accommodation is warranted to strengthen the recovery and support the gains we've begun to see in housing and other sectors. accordingly the fomc decided today on new actions electing to expand its purchase of such securities and extend its forward guidance regarding the federal funds rate. specifically the committee decided to purchase additional agency mortgage-backed securities or mbs at a pace of $40 billion per month. the new mbs purchases combined with the existing maturity extension program and the continued
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reinvestment the principal payments from agency debt and agency mbs already on our balance sheet will result in an increase in our holdings of longer term securities of about $85 billion each month for the remainder of the year. the program of mbs purchases should increase the downward pressure on long-term interest rates more generally but also on mortgage rates specifically which should provide further support for the housing sector by encouraging home purchases and refinancing. the committee also took two steps to underscore its commitment to ongoing support for the recovery. first, the committee will closely monitor incoming information on economic and financial developments in coming months and if we do not see substantial improvement, in the outlook for the labor market, we will continue the mbs purchase program, undertake additional asset purchases and employ our policy tools as appropriate until we do. we will be looking for the sort of broad based growth in jobs and economic activity that generally signal sustained improvement
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in labor market conditions and declining unemployment. of course in determining the size, pace and composition of any additional asset purchases we will as always take appropriate account of the inflation outlook and of their efficacy and their costs. additionally the committee emphasized it expect as highly accommodate i have it stance of monetary policy to remain appropriate for a considerable time after the economic recovery strengthens. this should provide greater assurance to households and businesses that policy accommodation will remain even as the economy picks up. in particular the committee today kept the target range for the federal fund rate at zero to one-fourth% and it anticipates at exceptionally low levels for the federal fund rate are likely to be warranted at least through mid 2015. in conjunction with today's meetings fomc participants, the seven board members and 12 reserve bank presidents submitted their individual economic projections and
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policy assessments for the years 2012 through 2015 and over the longer run. committee participants projections for the unemployment rate in the fourth quarter this year have a central tendency of 8.0 to 8.2%, declining to 6.0 to 6.8% in the fourth quarter of 2015. levels that remain somewhat above participants estimates of longer run normal rate of unemployment. participants projections of inflation have a central tendency of 1.7% to 1.8% for this year and 1.8% to 2.0% for 2015. while the economy appears to be advancing at a moderate pace with some improvements appearing in housing and elsewhere, fomc participants see economic outlook that remains uncertain. the economy continues to face economic headwinds including the situation in europe, tight credit for some borrowers and fiscal contraction at the federal, state and local levels. in addition, strains in
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global financial markets continue to pose significant downside risks. before i take your questions i would like to briefly address three concerns that have been raised about the federal reserve's accomodative monetary policy. first the is notion that the federal reserve purchases are akin to fiscal spending. second a policy of very low rates hurts savers. third that the federal reserve policies risk inflation down the road. on the first concern i want to emphasize that the fed's purchases of longer term securities are not comparable to government spending. the federal reserve buys financial assets, not goods and services. ultimately the federal reserve will normalize its balance sheet by selling financial assets back into the market or by allow them to ma tour. in the interim the federal reserve earnings from holdings of securities are remitted to treasury. in fact the odds are strong that the fed's asset purchase programs, both through their net interest earnings and by strengthening the overall economy will help reduce,
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rather than increase the federal deficit and debt. on the second concern my colleagues and i are very much aware holders of interest bearing assets such assert cats of deposit are receiving very low returns. but low interest rates also support the value of many other assets that americans own such as homes and businesses large and small. indeed in general healthy investment returns can not be sustained in a weak economy. of course it is difficult to save for retirement or other goals without the income from a job. thus while low interest rates do impose some costs, americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote. finally on inflation. inflation is varied in recent years with swings in global food and fuel prices caused by a range of factors such as drought and geopolitical tensions. however overall inflation has averaged very close to the committee's goal of 2% per year for quite a few years now.
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and a variety of measures show longer term inflation expectations are quite stable. the federal reserve is fully committed to both sides of its mandate, to price stability, as well as to maximum employment. it has both the tools and the will to act at the appropriate time to avoid any emerging threat to price stability. thank you. i would be happy to respond to your questions. [inaudible conversations] >> mr. chairman, your forecast doesn't get back to full employment for four years. could these new bond purchases go on for years? could you give us a better idea if you have specifics in minded when you know it is time to stop? >> yes. we'll be looking for signs that the economy is strong enough to promote improvement and sustained improvement in labor market conditions and declines in unemployment. that, we're not going to be able to sustained purchases until we're all the way back to full employment. that is not the objective.
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the idea is to quick inch the recovery and have the economy grow quickly enough to generate new jobs and reduce the unemployment rate. so that is the criteria we're looking at. >> christina peterson with dow jones. the statement indicated that the highly accommodative stance would be maintained until the recovery starts to strengthen but there are not any specific economic conditions are described. could you describe what those would be or is the fed seems reluctant to have done that so far? >> we will we've been talking about our communications at the fomc and trying to think about best to communicate to the public. what our policy reaction function so to speak is. and we haven't, to this point come to a set of numbers, a set of data that we can put out but what we're trying to convey here is that we're not going to be premature in removing policy accommodation. even after the economy starts to recover more quickly, even after the
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unemployment rate begins to move down more decisively, we're not going rush to begin to tighten policy. we'll give it some time to make sure the recovery is well-established. >> mr. chairman i want to talk about that that same line in the statement. does that mean that your tolerance for inflation will be higher in coming years, in the middle of recovery? and if not, what good is that language there if it doesn't tell people that the reaction to inflation has changed? secondly, stock prices are up today. so are oil prices and gold. why aren't those part of the same reaction to the fed's acts today? >> well, our policy approach doesn't involve intentionally trying to raise inflation. that is not the objective. the idea to make sure we provide enough support so that the economy will grow fast enough to bring unemployment down over time. as we look back at the last six months or so we've seen
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unemployment basically the same place it was in january. we've seen not enough jobs growth to bring down the unemployment rate. and what we need to see is more progress. and that's what we'll be looking at. in terms of the mid 2015 date, we think by that point the economy will be recovering. we'll be providing the support it needs, but if you look at our projections you see it doesn't involve any inflation. we still believe that inflation will be close to our 2% target. >> sir, i need to follow up. does this, so you're saying it does not include greater tolerance for inflation? that you will, would you reverse course if inflation were to be above your target level even given that statement? >> if inflation goes above the target level as we talk about the statement in january we take a balanced approach. we bring inflation back to the target overtime. we do it in a way that takes into account the deviation both of our objectives from our targets. [inaudible]
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>> thank you, mr. chairman. earlier this year two occasions the fed took policy actions which you defended as extremely important for the economy but as you mentioned there hasn't been on improvement in the labor market in the beginning of the year. why should people believe this will make a difference? it suggest as .4 reduction on the unemployment. is that a limit what fed policy can do going forward? >> our assessment, i talked about this in my remarks at jackson hole and our assessment and research literature the policies we've undertaken had real benefits for the economy. they have provided some support. that they have eased financial conditions and helped reduce unemployment. all that being said, monetary policy as i said many times is not a panacea. it is not by itself able to solve these problems. we're looking for policymakers in other areas to do their part. we'll do our part. we'll try to make sure that unemployment moves in the right direction. but we can't solve this problem by ourselves.
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>> do you think that .4 difference in the, -- what's possible? >> well, what happens is going to depend where the economy goes. how much ultimate accommodation we give the economy. the .4% you're referring to is the change in the forecast between the last projection and this one but remember people make projections, assuming that policies are appropriate. so some of them may have seemed these policies in your last projections. and not all are assuming policies in this projection. so that is probably an understatement what we can get. in any case, again i want to be clear. while i think we can make a meaningful and significant contribution to this problem to reducing this problem, we can't solve it. we don't have tools that are strong enough to solve the unemployment problem. [inaudible] >> you've made an eloquent explanation over the past couple of weeks of the fed's ability to lower interest
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rates. what is missing from many economists how the transmission mechanism is going to work. most people think this will have a minimal effect on rates. can you give us an idea how much you think it might push rates down? and why moving rates down a few basis points might change demand which seems to be the problem in the economy? >> well, the ultimate effect will depend of course how much we end up doing. that in turn will depend on what the economy does. this is conditional program. we'll be providing accommodation according to how the economy evolves. i think that's the virtue of putting it this way. if the economy is weaker we'll provide more support. if the economy strengthens on its own or other headwinds die down it will require less support. so the amount of support we provide will depend how the economy evolves. we do think that these policies can bring interest rates down
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home prices, for example. looking at all the different channels of affect, we think it has impact on the economy. will have impact on the labor market. again, a meaningful effect, a significant effect, not a fantasy, not a solution for the whole issue. we are just trying to get the economy in the right direction. we want to make sure we are making progress towards more acceptable levels of unemployment. >> mr. chairman, is this the minutes of what the fed could do? if the unemployment situation does not improve, what other measures do you have available? thank you.
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>> there are a variety of different possibilities. the two primary tools are balance sheet actions and we can restructure those, the other type of tools is communication tools. we continue to work with the public and the sure the public that it will have recovery. clarifying our response to economic conditions may be one way we can further provide accommodation. >> my question is, i want to go back to the transmission mechanism. that seemed to be the concern about the remarks that you made is that they could clearly see that affect on rates and the stock market, they could not see
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how that could help the economy. i think there is a fear, over time, this has been helping wall street, but not helping main street. how does it differ from trickle-down economics were you just pump money into the banks and hope that they land. >> this is a main street policy. we are trying to get jobs going. we are trying to meet our maximum employment mandate. that is our objective. the tools we have evolved affecting prices and those are the tools of monetary policy. there are a number of different channels. other interest rates, corporate bond rates. the prices of various assets, like for example, the prices of homes. consumers will feel wealthier, more disposed to spend, if house prices are rising, people may be
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more willing to buy homes. they feel they will make a better return on our purchase. if house prices is one vehicle. stop prices, many people own stocks directly or indirectly. one of the main concerns that firms have is there is not enough demand. not enough people coming and demanding their products. they feel better because they are 401(k) looks better, for whatever reason. that will provide the demand they need. >> mr. chairman, the statement says we have come back to this a couple of times, and the outlook for the river market does not improve, -- can you define and
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describe more specifically what improve substantially means and what is the committee referring to when it says additional asset purchases and other tools? >> well, again, we are looking for ongoing sustained improvement in the labor market. there is not a specific number we have in mind. what we have seen in the last six months, is not it. we are looking for something that involves unemployment coming down in a sustained way, not necessarily a rapid weight because i do not know if our tools are that strong. we like to see an economy that is strong enough that it will support improving labor market conditions and unemployment that is the climbing over time. that is essentially what we are looking for. we have mortgage-backed securities that we can continue or expand in various ways. we could also purchase, of
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course, treasuries. in terms of other policies, again, a number of policies. the one i mentioned, in particular, is our communication policies. finding ways to better explain our rate policies that will gender more accommodative situations. >> it seems pretty clear that the fed today created confusion about how long you will keep the budget. why did you choose not to adopt the specific target? did the committee consider the specific targets and why did you not choose to do that? >> well, the problem is that for this purpose, what we are looking for is a general improvement in labor market conditions. we want to see the unemployment rate down, but that is not the
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only indicator, obviously, of labor market conditions. the unemployment rate came down last month because participation fell. that is not necessarily improvement. we want to see a stronger economy that will cause the improvement to be sustained. we need to be looking for this to radically shift our policy. i hope i am giving you at least a little color in terms of what we will be looking for. again, an economy that is quickening. that gives a sign of continued improvement, that allows labor market to be stronger. and that will be the type of criteria we look at. we do not talk again, we do not have a single number that captures that.
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we anticipate we have to do more and we will do enough to make sure that economy gets on the right track. >> hi, mr. chairman. someone told me less than 1% of all mortgages originated in the last 18 months went into bars with him. history. it seems like you are struggling like many other central banks. that is to get the low rates down to people who really need them. people who are paying high rates are companies with somewhat fragile balance sheets. given that is the case, you got involved in markets when they were dysfunctional in the crisis. what is your process?
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>> not you are talking about congressional programs and i do not advocate specific programs. it is up to them to make those decisions. i think we are seeing modest improve in mortgage markets. they are worried about further house price the client that will make the collateral worth less than the loan beard. they have also been other changes which are useful. the fh fa have recently changed their policies so that banks will have more certainty about what conditions a mortgage will be put back to them if it defaults. i think there are a number of things that will make the mortgage targets a little bit more open. that is one factor, actually,
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that could make our policy more effective over time as more people have access to mortgage credit. where people can take advantage of the low rates we are providing. >> mr. chairman, one of the innovations of your statement today is you predicated your monetary policy action on achievement of economic goals. could you give us some explanation of how that conditioning will make your policy more effective and a technical question, when operation twist ends, do you anticipate adjusting the size of your active purchases in order to maintain the monthly full of long-term asset purchases? >> on the ladder when operation twist ends, we will be looking at the whole set of asset purchases in order to make
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decisions. we will be looking at the state of the economy. in particular, what is the state of the labor market, what is the state for the outlook of economic growth. on conditioning, our policy has always been conditional and that we have always been clear that our asset purchase for example are reviewed periodically to see if they need to be expanded. our policies have always had a significant element of conditionality. we need to make it more transparent to the public. ticket more obvious that the fed will do what is needed to provide the support for the economy. we hope that what that will do is provide a bit more assurance. the fed will be there to do what it can. again, we are not promising, you know, a cure to all of these
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pills, what we can do is provide support and assure the public that we are prepared to take action if the economy falters. we are hopeful. >> sir, just to follow-up, peter barnes at fox business, it looks like there is a lot more work to do here. i wanted to ask you about your plans as fed chairman. your term expires in january of 2014. governor romney notwithstanding. what are your plans? do you plan to leave at that time? and, if i may, on election year, do you have any concerns within the committee about whether or not your actions to date may be
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perceived as helping president obama, helping the economy and helping president obama get reelected and hurting governor romney's chances in the presidential contest. thank you. >> i am very focused on my work. i do not have any decision or information to give you on my personal plans. on the politics, we have tried very very hard and i think we have been successful at the federal reserve to be nonpartisan and make our decisions based entirely on the state of the economy and the needs of the economy for policy accommodation. we just do not take those factors into account. we think that is the best way to maintain our independence and the trust of the public.
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>> chairman, my question pertains -- community bankers, as you know, have been very worried about the impact of these rules on the banks. some have even questioned whether or not the fed is actually looking at the impact that the rules would have on smaller sized institutions. i question for you is, will there be a relief for smaller institutions and can you provide any assurance that this will not be a one-size-fits-all regulation? >> we are very interested in focus on community banks. we believe they play a very important role in our economy and our communities. we have a number of ways of communicating with community banks and that includes our advisory council made up of community bankers, it includes a special set of programs we have to reach out and talk to community bankers.
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we are very interested in their views. i speak with conventions and the like and talk with various groups. of course, it is not one-size-fits-all. many and indeed many of the most difficult, complex regulations apply only to the largest and most complex institutions. for example, the capital surcharge that the largest banks have to hold, the complex rules applying to trading books and derivatives convex or supervision under 65, the liquidity rules, the whole range of things that apply only to the artist most complex banks. for the smaller banks, what our rule does is try to strengthen their capital and many small banks will already need those capital requirements. small banks tend to be very well capitalized. it is important. there is a leverage
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requirements. again, most of the rules, most of the complex rules, will not apply to the smaller banks. indeed i'm a big sober 500 million have a special exempt from these rules. i remind you, what we have is a proposed rule. we will be looking at the comments and trying to make sure that we take into account the needs of community banks. >> thank you, mr. chairman. yesterday former fed governor
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had a conference in washington and said he has never seen such a divided fed. we see it in the speeches and run up to today's decision. some people said it was dubious whether qe3 would work. can you comment on that and sometimes don't you wish some of the fed officials who do not support qe would keep their peers to themselves? thank you. >> as you know, we are living in a very complex time. dealing with a complex economic situation and a variety of novel and different issues, including new policies that have not been used in the same way in the past, and, naturally, we have a range of use, a range of opinions. i think on the whole, that is probably a good thing. it is good to hear different points of view.
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it is good to make sure that the point of view outside the fed are reflected in the discussion around the table inside the fed. we have a very collaborative and collegial discussion process. we are, however, able to come to a good consensus. the vote on this was 11-one. that is a sign that the broad center of the committee does support these actions and will continue to support them going forward. >> there is negative commentary, could it hurt qe people in the market don't think it will work? >> there will be negative commentary, whether it comes from fed officials or not. there is a range of views. some people think it is more effective than others. i discussed some of the evidence in my speech in jackson hole.
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i talked about the fact that different researchers have gotten different evidence to the impact. there will be disagreement. i personally do not think it will solve the problem, but i do think it has enough force to help nudge the economy in the right direction. >> you said that you do not have strong enough tools to deal with the on implement problem. while policy actions would you like to see outside the fed to try to address this? do you expect spending cuts and tax increases? how concerned are you about that? what ammunition do you have to do with that if that becomes a problem? >> actions could be taken.
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i cannot really prescribe all those possible responses. i would focus, i think, on the fiscal side. there will be a very substantial increase in taxes and cut in spending on january 1 of the coming year. the cbo has suggested that if that is allowed to take place that it would cause unemployment to rise. it may throw the economy back into recession. one very basic thing that could be done to help address the recovery, the weakness and the need for more employment, would be to address the fiscal cliff while simultaneously addressing longer-term fiscal sustainability's. there is a lot of potential benefit in that area. if the fiscal cliff is not addressed, as i said, i not
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think our tools are strong enough. i think it is really important for the fiscal policymakers to, you know, were together and try to find a solution for that. >> you foresee a low inflation rate below 2%, not you personally, i am wondering, if you look at the growth rates, how long do you think it may work -- and the second question, a lot of economists do not see too much effect out of a further
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round of qe3. are you worried and promising that you will do whatever you can that you give some kind of -- to the policy into congress not to do enough on their side of the policy action? >> well, on inflation, we do anticipate at some point what is normal in a recovery, which is given that the economy felt very quickly and is a lot of unused capacity, a lot of flack in the economy, it would be normal wear the economy would grow faster than trends in order to make up what was created. we do not anticipate that economy will be over eating anytime soon. as long as we pay close attention to inflation expectations, as well as, the trajectory of the economy, we think inflation will remain close to our 2% target.
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on your second question, certainly there is a range of views on how effective these tools are. i spent a lot of time, as my colleagues have, looking at the evidence, and, of course, the staff have done a great deal of work on the question. the bottom line is that while these tools are not so powerful that they can solve the problem, they are, at least, able to provide meaningful support to the economy. howard job is to use the tools we have to meet the mandate which is maximum employment and price stability. if we have tools that we think back and provide some assistance, i think our obligation is to do what we can. of course, we would like to see policies across the board to help address these issues, but, you know, that is not our
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problem. we are the monetary policy authority and our job is to use monetary policy as effectively as we can. >> there have been concerns raised, questions raised, by people like: via professor michael woodford about the credibility to the federal funds rate, the idea being that it is conditional, it is not really convincing and does not provide the kind of confidence you referred to. in this latest statement, you removed some of that conditionality and particularly struck by the statement that the committee expects a highly stance of monetary policy will
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remain appropriate for a considerable amount of time after the economic recovery strengthens. i assumed that was done to make your forward guidance more credible. yet the question remains whether, you know, as the economy picks up steam, whether it will really follow through and keep rates low or whether you will do as the fed has always done and begin to raise the funds rate. >> well, that is an important question. michael woodford, who, by the way, is my former colleague and co-author and friend, i know him and his work quite well. i think, actually, the thrust of his research is communication about future policies, the most powerful tool that banks have an interest rate is close to zero. he advocates policies that would essentially require credibility lasting many years. the application being that the
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fed would target the nominal level of gdp and promised to do that for many years in the future, even if inflation rose as part of that policy. so, his own perspective is that credibility is the key to it that central banks have in order to get traction at the zero lower bound. whether we have the credibility to persuade markets that will follow through is an empirical question and the evidence, which i also again discussed in my remarks is that we have announced extended guidance and financial markets have responded to that. forecasters have changed their estimates to what on implement and inflation will be. the empirical evidence is that our announcement do have a considerable credibility. i think there is a good reason for that. we have talked a lot, both
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publicly and privately, about the rationale for maintaining rates low even as the economy strengthens. the basic ideas are broadly espoused within the committee. even as things change that this is the appropriate approach. following through, we will have created a reserve of credibility that we can use in any subsequent things that occurred. >> with mortgage rates already at historical lows, how much further do you think that action, your actions will drive down the rates? i am assuming you expect to purchase mortgage back securities to have a meaningful effect on refinancing and
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housing activity. what would that look like? what would that meaningful effect means he meant well, again, as i mentioned before, it is true that our mortgage-backed security prices ought to drive down mortgage rates and put pressure on mortgage rates and create more demand for homes and more refinancing. it will depend on several things. the amount that we do, the amount of purchases that we do and that in turn will be a function about the economy evolves. if the economy is weaker, we will do more. if the economy is stronger, strong enough to create improving labor market conditions, we will not have to do as much. the amount that we do depends on the amount the concrete evolves. that is hard to give you an
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exact estimate. i think that, you know, in terms of how many homes in those kinds of questions, again, i think the markets are looking a little better. i think that house prices are beginning to rise in some markets which will encourage people to look at homes. encourage letters to make more mortgage loans. that has been one of the missing pistons in the engine here. housing is usually a big part of our recovery. to the extent that we can support housing, i think that would be a very useful outcome. >> many people could qualify for refinancing, can you expect a meaningful effect on increasing? >> i think there will be

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FOX Business September 13, 2012 1:00pm-3:00pm EDT

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